The Attorney General of Texas
MARK WHITE
Attorney General July 14, 1982
Mr. Kenneth E. Graeber Opinion No. W-495
Supreme Court Suildin9 Executive Director
P. 0.80x 12548
State Property Tax Board ‘Re: Calculation of tax rate
Austin. TX. 78711-2348
5121475-2501
9501 North III-35 under section 26.04 of the
Telex 91Ol974-1367 Austin, Texas 70761 Property Tax Code
Telecaoiar 5121475.V266
Mr. Rsyman L. Bynum
Commissioner
1M)7 Main St.. Suite 1400
Dallas. TX. 75201.4709
Texas Education Agency
2141742-9944 201 East 11th Street
Austin, Texas 78701
4824 Alberta Ave.. Suite WI
Dear Messrs. Graeber and Bynum:
El Paso. TX. 79905.2793
91515333484
Section 26.04 of the Property Tax Code sets forth procedures for
calculating potential tax increases which must be followed by each
1220 Dallas Ave.. Suile 202 local taxing unit prior to its adoption of a tax rate. The
“ouston. TX. 770028986
computations required by subsection (d) produces the tax rate which,
713m50-0665
when applied to this year’s assessments will yield taxes comparable to
last year’s levy. Adjustments are made for property value which was
806 Broadway. Suite 312 formerly taxable but now exempt and for property added to the tax
Lubbock. TX. 79401.3479 roles. This “truth-in-taxation” statute requires a taxing unit to
8064747-5239
hold public hearings if there is an increase of three percent or more
in the proposed tax rate over the “effective tax rate.” Section
4309 N. Tenth. Swte S 26.04(c) provides for the calculation of an amount of tax dollars upon
McAlkn. TX. 78501.1685 which the “effective tax rate” is computed in accordance with section
512l692-4547 26.04(d).
200 Main Plaza. Suite 400 Section 26.04 states in part:
San Antonio. TX. 78205-2797
51242254191 (c) An officer or employee designated by the
governing body shall subtract from the total
An Equal Opportunity/
amount of property taxes imposed by the unit in
Attirmafive Action Employer the preceding year:
(1) the amount of taxes imposed in the
preceding,year to pay principal of and interest
on bonds, warrants, certificates of obligation,
or other lawfully authorized evidences of
indebtedness issued or assumed by the unit and
to pay lawfully incurred contractual
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Mr. Kenneth E. Graeber - Page 2 (w-495)
obligations providing security for the payment
of principal of and Interest on bonds or other
evidences of indebtedness issued on behalf of
the unit by another political subdivision;
(2) the amount of taxes imposed in the
preceding year on property in territory that
has ceased to be a part of the unit;
(3) the amount of taxes imposed in the
Preceding year on taxable value that is exempt
in the current year; and
(4) the amount of taxes imposed in the
preceding year on taxable value that is not
taxable in the current year because property
appraised at market value in the preceding year
Is required by law co be appraised at less than
market value in the current year. (Emphasis
added).
Your concerns center on the above underscored language. You suggest
that the phrase "taxable value that is exempt in the current year" is
susceptible of two interpretations. You first ask whether section
26.04(c)(3) of the Property Tax Code includes value lost through
partial as well as total exemptions or only value lost through total
exemptions. If we conclude that partial exemptions are included, you
then wish to know which of two suggested methods of calculating
taxable value lost through the granting of exemptions is correct. We
conclude that the underscored phrase in section 26.04(c)(3) is meant
to reach both taxable value which is exempt due to the granting of
partial exemptions and taxable value which is exempt due to the
granting of total exemptions in the current year.
Section 1.04(10) of the Property Tax Code defines "taxable value"
to mean "the amount determined by deducting from assessed value the
amount of any. applicable partial exemption." (Emphasis added).
Section 1.04(11) defines "partial exemption" to mean "an exemption of
part of the value of taxable property." (Emphasis added). When these
definitions are read together with the language "taxable value that is
exempt in the currents year" in section 26.04(c)(3), it is manifest
that the legislature intended that value lost due to the grant of
partial exemptions be included in the calculation of the effective tax
rate.
It has been suggested, however, that section 26.04(c)(3). when
read together with article VIII , section 21 of the Texas Constitution,
is ambiguous and should properly be read to refer only to value lost
through the granting of total exemptions. We disagree. You inform us
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Mr. Kenneth E. Graeber - Page 3 (w-495)
that. since the effective date of article 7244~' V.T.C.S.. the
now-repealed predecessor to section 26.04. the language "taxable value
that is exempt in the current year" has been uniformly construed by
the State Property Tax Board, the Texas Education Agency, and the
taxing units throughout the stste to include value lost through the
granting of partial exemptions, not just value lost through the
granting of total exemptions. The construction placed upon a statute
by the agency charged with its administration is entitled to great
weight, Rx parte Roloff, 510 S.W.2d 913 (Tex. 1974); State v. Aransas
Dock and Channel Company, 365 S.W.2d 220 (Tex. Civ. App. - San Antonio
1963, writ ref'd). especially vhere contemporaneous, or nearly so.
with the statute itself. Burroughs v. Lyles, 181 S.W.2d 570 (Tex.
1944); Stanford v. Butler, 181 S.W.Zd 269 (Tex. 1944).
In addition, the legislature has enacted corrective amendments to
the code without changing the administrative construction of section
26.04. See National Life Company v. Stegall, 169 S.W.2d 155 (Tex.
1943). During the 1981 regular session the legislature enacted a
corrective amendment to section 26.04(c)(4). This section refers to
"taxable value that is not taxable in the current year" because of a
legal requirement that property formerly appraised at market value be
appraised at less than market value. The amendment to section
26.04(c)(4) requires taxing units to subtract taxable value lost due
to the granting of special valuation as set forth in chapter 23 of the
code. This subtraction was not permitted prior to the passage of the
amendment, since a loss In taxable value resulting from special
valuation is not identical to a loss in taxable value due to
exemption. The fact that the legislature amended sectlon 26.04 by
adding in 1981 another category of "taxable value that is not taxable
in the current year" indicates its acceptance of the administrative
construction.
Moreover, we do not believe the language of article VIII, section
21 compels us to read section 26.04(c)(3) as referring 9 to
property totally exempt from property taxation. In our opinion, the
constitutional provision does not preclude the legislature from
including in the computation property which is partially ,exempted.
Article VIII, section 21 of the Texas Constitution provides the
following in pertinent part:
Sec. 21 (a) Subject to any exceptions
prescribed by general law, the total amount of
property taxes imposed by a political subdivision
in any year may not exceed the total amount of
property taxes imposed by that subdivision in the
preceding year unless the governing body of the
subdivision gives notice of its intent to consider
an increase in taxes and holds a public hearing on
the proposed increase before it increases those
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Mr. Kenneth E. Graeber - Page 4 (m-495)
total taxes. The legislature shall prescribe by
law the form, content, timing, and methods of
giving the notice and the rules for the conduct of
the hearing.
(b) In calculating the total amount of taxes
imposed in the current year for the purposes of
Subsection (a) of this section, the taxes on
property in territory added to the political
subdivision since the preceding year and on new
improvements that were not taxable in the
preceding year are excluded. In calculating the
total amount of taxes imposed in the preceding
year for the purposes of Subsection (a)'of this
section, the taxes imposed on real property that
is not taxable by the subdivision in the current
year are excluded. (Emphasis added).
Article VIII, section 21 establishes a limitation on the taxes
which may be imposed from one year to the next. It provides that the
total amount may not exceed a .speclfied amount unless certain notice
and hearing requirements are met. In no event would the calculation
required by the statute exceed the amount derived from the calculation
formula set forth in article VIII, section 21. The amount of taxes
imposed in the preceding year will be reduced under the statute by
taxable value lost not only,by the grant of total exemptions but also
by the grant of partial exemptions. The total amount of taxes
calculated under the statute will thus always be less than that
calculated under article VIII, section 21.
Moreover, even if article VIII, section 21(b) were construed as
providing a compulsory calculation formula, section 26.04 would not
violate the constitutional provision. The inclusion of the phrase in
article VIII, section 21(a) "[slubject to any exceptions prescribed by
general law" severely undercuts any argument that article VIII,
section 21 sets forth a compulsory calculation formula which the
legislature is without power to change by statute. Therefore, section
26.04. to the extent that.it departs from any calculation formula set
forth in article. VIII, section 21. constitutes an "exception
prescribed by general law." We conclude that section 26.04(c)(3) of
the Property Tax Code includes value lost through partial as well as
total exemptions.
Your second question concerns the method of calculating taxable
value lost through exemptions. You wish to know the proper method of
calculating the amount to be subtracted from the amount of taxes
imposed in the preceding year. Specifically, you wish to know which
of two suggested methods of calculating "the amount of taxes imposed
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,- Mr. Kenneth E. Graeber - Page 5 (h&+&S)
in the preceding year on taxable value that is exempt in the current
year” more closely comports with section 26.04 of the code.
A brief explanation may be helpful here. A tax rate is
determined by dividing the amount of tax revenue the taxing unit seeks
to collect by the taxable value of the property of the taxing unit.
That is,
tax levy (i.e. adopted budget)
tax rate =
taxable value of property
The effective tax rate calculation is designed to provide
taxpayers an accurate means of determining the amount of increase or
decrease in property taxes levied from one year to the next. The
“effective tax rate” means the tax rate directed at yielding the
amount of taxes collected last year when it Is applied to this year’s
taxable property. In computing the effective tax rate, the numerator
in the fraction, i.e. the amount of tax revenue which the taxing unit
seeks to collect,= based on the amount of taxes collected in the
previous year. Generally. the effective tax rate is determined by
dividing the tax levy imposed in the preceding year (with certain
amounts subtracted therefrom) by the market value of all property in
the taxing unit in the current year (with certain amounts subtracted
therefrom). The amounts subtracted from the numerator and denominator
are the tax levy and taxable value attributable to properties taxed
last year which remain untaxed in the current year because of
exemption or special valuation. That is,
1981 tax levy minus taxes levied on property
effective = taxable in 1981 but not in 1982
tax rate taxable value in 1982 minus value taxable in
1981 but not 1982
Under the method proposed by the Texas Education Agency
(hereinafter TEA). the taxable value ‘for the current year is
subtracted from the taxable value for the preceding year and that
remainder is multiplied by the preceding year’s tax rate. The
resulting product is purportedly the amount of tax dollars lost from
last year’s tax revenues due to the granting of exemptions in the
current year on taxable value that was taxed in the preceding year.
If the taxable value for the current year is greater than the taxable
value for the preceding year, the taxing unit would incur no nets loss
in tax revenue and no amount of levy would be subtracted. TEA’s
method begins, then, with a comparison of taxable value from one year
to the next and, in the event that there is no net loss in taxable
value in the current year as compared with thepreceding year, no
adjustment is made to last year’s levy to account for revenue loss.
However subsection (c)(3) requires the subtraction of that revenue
p. 1768
. ’ Mr. Kenneth E. Graeber - Page 6 (w-495)
loss which is attributable to the granting of exemptions in the
current year that were not granted in the preceding year. It applies
to taxable value which, first, was taxed In the preceding year and.
second,‘is exempt in the current year. It does not apply only when
there is a net loss of taxable value from one year to the next. The
method proposed by TEA simply does not comport with the statute.
The revenue loss computed by TEA’s proposed method accurately
reflects the tax revenue lost only when the market value of a property
receiving an exemption remains constant from the preceding year to the
current year. In that event, any loss In taxable value in the current
year as compared to that of the preceding year is attributable solely
to the grant of an exemption in the current year or to special
valuation. See section 26.04(c)(4), Property Tax Code. However, if a
taxing unit reappraises property in the current year and the resulting
increase in market value is greater than the amount of any new
exemption granted in current year, TEA’s proposed method would
mistakenly indicate no loss in revenue due to the granting of new
exemptions. In reality, however, the taxing unit would incur a loss
of revenue due to the granting of new exemptions; the loss would
merely be offset by the increase in market value, and the taxing unit
would incur no net loss in tax revenue in the current year. If a
taxing unit reappraises property in the current year and there is a
decrease in market value of property which receives an exemption in
the current year which it did not receive in the preceding year, TEA’s
method would mistakenly attribute the total loss in taxable value to
the granting of the exemption. It would fail to take into account a
loss in market value.
Under the method proposed by the State Property Tax Board
(hereinafter SPTB), the amount of the exemption granted in the current
year on taxable value taxed in the preceding year is multiplied by the
tax rate for the preceding year. The amount of the new exemption
granted in the current year is determined in one of two ways. If the
new .exemption granted is a partial exemption, *, $5,000 residence
homestead exemption or $10,000 residence homestead exemption for the
elderly, see section 11.13. Property Tax Code, that dollar amount is
the amountof the exemption granted. That amount is used in the
calculation, If the new exemption granted is a percentage of market
value, see article VIII, section l-b, Texas Constitution, the
percentagemultiplied by the preceding year’s market value is the
amount of the exemption granted.
We conclude that the method proposed by SPTB comports with the
statute; the loss computed under this method more accurately reflects
the loss in tax revenues due to the granting of new exemptions. In
the event that there is no reappraisal and the market value of a
property receiving a new exemption remains the same, the loss
reflected by SPTB’s method equals the loss in taxable value actually
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Hr. Kenneth E. Graeber - Page 7 (m-495)
attributable to the granting of the new exemption. In the event that
there is a reappraisal and the market value of a property receiving a
new exemption increases, the loss reflected by SPTB’s method again
equals the loss in taxable value actually attributable to the granting
of the new exemption. This is so regardless of whether the increase
in market value offsets the loss incurred due to the granting of the
exemption. In the event that there is a reappraisal and the market
value of a property receiving a new exemption decreases, the loss
reflected by SPTB’s method equals the loss in taxable value actually
attributable to the granting of the new exemption. It does not
mistakenly include a loss in taxable value which is attributable to a
loss in market value.
SUHMARY
The phrase “taxable value that is exempt In the
current year” in section 26.04(c)(3) of the
Property Tax Code refers not only to taxable value
lost as a result of the granting of total
exemptions, but also that lost to the granting of
partial exemptions. The correct method of
determining “the amount of taxes imposed in the
preceding year on taxable value that is exempt in
the current year” is determined by multiplying the
amount of the exemption granted in the current
year on taxable value taxed in the preceding year
by the preceding year’s tax rate. The amount of
the exemption granted in the current year is
determined in one of twosways. If the exemption
is a partial exemption or a total exemption, the
number used in the calculation is simply the
amount granted. If the exemption granted is a
percentage exemption granted pursuant to article
VIII, section l-b of the Texas Constitution, then
the amount of the exemption granted .is equal to
that percentage multiplied by the preceding year’s
market value.
xzg
MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
RICHARD E. GRAY III
Executive Assistant Attorney General
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